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Efficiency of the pension reform: the welfare effects of various fiscal closures

  • Jan Hagemejer


    (National Bank of Poland; Faculty of Economic Sciences, University of Warsaw)

  • Krzysztof Makarski


    (National Bank of Poland; Warsaw School of Economics)

  • Joanna Tyrowicz


    (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)

Pension system reforms involve fiscal consequences. In practice, a variety of fiscal closures may be implemented, while not all of them involve the same extent of distortions. This paper develops an overlapping generations model to analyze the case of a shift from pay-as-you-go defined benefit system to a partly funded defined contribution system. We calibrate the system to mimic the economy of Poland, which actually implemented such reform in 1999. We analyze the efficiency of the reform with two main closure types: public debt and taxes. Regardless of the fiscal closure scenario this particular reform seems to be efficient in terms of welfare and enhances economic performance. Comparing the welfare of various closures we find that while labor taxation yields relatively higher welfare gain, public debt closure involves least need for the redistribution if capital pillar is to be implemented.

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Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2013-23.

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Length: 31 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:war:wpaper:2013-23
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